The Impact of Brexit on German Businesses - Results of the IHK Business Survey Going International 2019 - DIHK
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The Impact of Brexit
on German Businesses
Results of the IHK Business Survey
Going International 2019
Going
International
2019
2 Impact of Brexit – Going International 2019
The nationwide DIHK survey "Going International 2019" was conducted with the support of 79 chambers
of industry and commerce (IHKs) in Germany. More than 2,100 foreign companies based in Germany
took part in the survey in February 2019. The results of this special evaluation on Brexit are based on the
responses of around 1,500 companies with business connections to the UK.
The trade volume between Germany and the United Kingdom (UK) amounted to 119 billion euros in
2018. Around 750,000 jobs in Germany depend on trade with the UK. To date, German companies have
built up investments worth over 140 billion euros. About 2,500 branches of German companies are lo-
cated in the UK and employ more than 400,000 people. British companies have 1,500 branches in Ger-
many and employ around 270,000 people.
Form of business activity in the United Kingdom (share of enterprises)
Exports of goods or services to the United Kingdom 63%
Imports of goods or services from the United Kingdom 30%
With a branch / office in the United Kingdom 17%
We employ British citizens 13%
We employ German nationals in our UK office 3%
Publisher © Deutscher Industrie- und Handelskammertag | Berlin | Brussels
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Responsible Persons Emanuel Weishäupl, Dr. Ilja Nothnagel
Editors Mathias Dubbert, Emanuel WeishäuplImpact of Brexit – Going International 2019 3
Key Results:
1. The imminent Brexit is already a burden for companies
The business situation of the companies has deteriorated considerably. Only one in
five German companies still reports good business in the United Kingdom.
Concerns about future developments are high: 70 percent of companies expect their
business with the UK to deteriorate in 2019.
Some companies are already taking action. Every 8th company with UK business is
currently planning to relocate its investments to other markets. The majority of in-
vestment relocations from the UK are to Germany and other EU countries.
2. Concerns about tariffs and legal uncertainty are high
For companies a concrete preparation is still only possible to a limited extent. For more than
half of the companies, concrete effects of Brexit are still unclear.
Three-quarters of the companies are concerned about additional customs bureaucracy. In ad-
dition, higher costs for customs duties and import taxes as well as legal uncertainty are the
biggest risk factors.
SMEs in particular face cost-intensive challenges. A hard Brexit would lead to additional
burdens due to the additional customs bureaucracy and payments of customs duties in bil-
lions.4 Impact of Brexit – Going International 2019
Company Assessments
The approaching Brexit represents a major challenge for trade relations between Great Britain and the European
Union (EU). The negative effects of the Brexit vote are already weighing on business. German-British trade has
been declining since the Brexit decision. Almost 30 months after the referendum and just less than a month before
the withdrawal, there is still uncertainty about future trade relations. The German economy is correspondingly in-
secure. The intentions for local investment are declining. Some companies are already planning to relocate invest-
ment from Great Britain to other countries - primarily to the rest of the EU.
The approaching Brexit represents a major challenge Not even every fifth company rates its business with
for trade relations between Great Britain and the Great Britain as good. In contrast, after 25 percent
European Union (EU). The negative effects of the in the previous year, 38 percent of companies now
Brexit vote are already weighing on business. Ger- rate the situation as poor. The balance of "good" and
man-British trade has been declining since the "bad" valuations has thus plummeted from plus four
Brexit decision. Almost 30 months after the referen- points to minus 17 points in the last twelve months.
dum and just less than a month before the with- In comparison: the balance of the current business
drawal, there is still uncertainty about future trade situation of German companies in other EU countries
relations. The German economy is correspondingly without the euro as well as in Switzerland and Nor-
insecure. The intentions for local investment are de- way is plus 44 points, with the eurozone countries
clining. Some companies are already planning to re- even plus 56 points.
locate investment from Great Britain to other coun-
tries - primarily to the rest of the EU. Companies' expectations for the next twelve months
have fallen dramatically. A deterioration of their
Pessimism about business situation and business with Great Britain is now expected by 71
percent. In 2018 the figure was 36 percent. The pro-
business perspective portion of those with confidence is just three per-
cent (twelve percent 2018). The balance is now at
German companies with business relations with the minus 68 points and thus significantly lower than a
United Kingdom assess their current situation signif- year ago (minus 24 points). Looking at the individual
icantly worse than in the previous year. sectors, the metal industry, the automotive industry
and suppliers, as well as the retail trade, rate their
business prospects as the worst.
good; 21%
bad; 38% worse; 71%
business
situation
balance: -17 business
expectations
balance: -68
satisfactorily;
42%
the same; 26% better; 3%Impact of Brexit – Going International 2019 5
Current business situation and expectations of German companies
operating in the United Kingdom
business situation business expectations
3,6 4,1
-17,0
-24,2
-30,9
-68,2
Balance of good/better minus bad/bad answers 2017 2018 2019
Relocation of UK investments to other markets
Company share in percent, multiple answers possible
48
Germany
thereof to ...
other EU,
No: 87,5% Yes: 12,5% 58 Switzerland,
Norway
Eastern/South-
13 eastern Europe
27 outside Europe
The impacts of Brexit are already being felt. The Brit- An unregulated Brexit hits Great Britain incompara-
ish pound has lost noticeable purchasing power bly harder. First consequences can already be ob-
against the euro. This also reduces sales opportuni- served on the island. British economic output is
ties of German producers. Last year German exports growing significantly weaker than before the refer-
to the island fell by almost four percent. Before the endum. Based on the present business survey, DIHK
Brexit vote, Great Britain was Germany's third larg- expects economic growth in 2019 to be well below
est market with 89 billion euros. According to pre- the EU average.
liminary data, the United Kingdom only ranks fifth
behind the Netherlands in 2018 with 82 billion eu-
ros.6 Impact of Brexit – Going International 2019
Relocation of investments planned their business. Even if there are no direct supply re-
lationships with British companies or investments
with the United Kingdom, other companies may be
Thirteen per cent of companies with investment in
indirectly affected by Brexit via supplier structures,
the UK are now planning to relocate their invest-
intermediate products or customer relationships. For
ment to other markets to avoid the disadvantages of
example, a plant manufacturer can currently pur-
losing membership of the European single market as
chase components exclusively from suppliers in Ger-
a result of the UK's imminent departure from the EU.
many and France and does not see itself affected by
Brexit. If, however, British primary materials are in-
The withdrawal of investments would take place pri-
corporated into the components manufactured by
marily in the remaining 27 EU countries or in Swit-
one of the suppliers, the affected component, and
zerland and Norway. Almost half of these companies
thus possibly the end product after Brexit, no longer
are considering relocating to Germany. This shows
reaches the preferential EU origin in case of doubt
that companies are looking for stable conditions
and would then not be able to profit from the EU
and, in case of doubt, are relying on the internal
trade agreements, for example with Japan or Can-
market or on predictable and preferential trade rela-
ada.
tions with Switzerland and Norway.
Only one in four of the companies surveyed stated
Preparation for a "hard" Brexit only pos- that they were well prepared for the possible conse-
sible to a limited extent quences of the British withdrawal. More than half of
the companies are still unable to assess the conse-
quences even after a more in-depth examination of
Shortly before the official withdrawal of the British
the issue (previous year: 43 per cent). The significant
from the EU, 88 percent of German companies -
increase is hardly surprising, especially in regard to
even those without direct trade relations with Great
the major delays in the Brexit negotiations. Only
Britain - were concerned about possible impacts on
nine percent of the companies state that they are
The companies have already taken the following measures in preparation
for Brexit (in percent, multiple answers possible)
Discussions with customers and suppliers to 68%
clarify possible effects
Knowledge development / training in customs law 48%
Value and supply chains audited 43%
Review of contracts with regard to potential 41%
risks by Brexit
Examination of possible tax changes (e.g. VAT 29%
system)
stockpiling 28%
Withdrawal from the British market examined or prepared 12%
Other 6%
Change of insurance checked or prepared 5%
Financial services UK service provider reviewed 5%
Suspension clauses for employees sent to 2%
Great Britain integrated in contractsImpact of Brexit – Going International 2019 7
The companies see the following risks for business in the United Kingdom
after the Brexit (in percent, multiple answers possible)
customs bureaucracy 78%
Increase in tariff barriers to trade 57%
Legal uncertainty 45%
Medium-term slowdown in UK economic 43%
growth
foreign exchange risks 39%
Increase in non-tariff barriers to trade (also
25%
for services)
No special risks 10%
Other 4%
not affected by the consequences of Brexit. A year the exit of the United Kingdom from the EU internal
ago, this figure was only 25 percent. Twelve percent market through further training measures - e.g. in
have not yet analyzed the possible consequences of customs law. In this context, more than 40 per cent
the exit from the EU for their business. of companies state that they have audited their
value and supply chains. Similarly, many companies
Looking at the size classes of companies, mainly have examined their contracts for Brexit risks.
small companies claim that they are not affected by
Brexit. Larger companies however, are affected to a In addition, around one-third has looked at the tax
greater extent and also report more frequently that consequences or has already stocked up. Twelve per-
concrete effects are still unclear. cent of the companies have examined a withdrawal
from the British market or at least made prepara-
Businesses in exchange with customers tions for it.
and business partners
Customs bureaucracy the biggest busi-
German companies are in a dilemma: Most of the
ness risk
precautions for a "hard" Brexit, such as the acquisi-
tion of additional IT capacities, the hiring of person- In the event of a disorderly Brexit, up to ten million
nel or the stocking up of stocks, are related to con- new customs declarations and additional costs
siderable expenditure. In case of a deal, these amounting to 200 million euros are threatened by
measures might be obsolete and the companies customs bureaucracy alone. Against this background,
would have invested in vain. For this reason the ma- four out of five companies see the threat of addi-
jority of companies (68 percent) initially focus their tional customs bureaucracy as a particular risk for
preparations on discussions with their customers future business with the United Kingdom. These in-
and suppliers. clude, among others, the filing of customs declara-
tions and the duration of customs clearances. Ger-
Value and supply chains are extremely complex. In man producers are particularly concerned about pos-
particular, issues such as customs procedures or sible delays in delivery and bottlenecks in logistics.
technical approvals often pose a major obstacle to This means that higher bureaucratic hurdles are
successful trade, as does logistics. Therefore, almost mentioned more often than threatening tariff barri-
half of the companies try to prepare themselves for ers to trade such as customs duties. In case of a8 Impact of Brexit – Going International 2019 withdrawal without an agreement, the EU would es- timate the WTO tariffs currently applicable to third countries for all imports from Great Britain. Con- versely, there is the possibility that the UK may levy tariffs in line with EU tariff rates. This would lead to additional burdens in the billions and possibly also affect the re-import of EU goods.
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